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Sanford, N.C.-Based Convenience Store Chain Posts Strong 4th-Quarter Earnings

Posted on: Friday, 2 December 2005, 00:00 CST

By Sue Stock, The News & Observer, Raleigh, N.C.

Dec. 2--The Pantry's stock surged to an all-time high Thursday after the Sanford-based convenience store chain reported strong fourth-quarter results fueled by higher gasoline profits and revenue from new stores.

The company also said it expects next year's earnings to be better than expected.

The Pantry's good fortune came during a quarter in which Hurricane Katrina slammed the Gulf Coast and triggered a nationwide gas shortage that sent prices soaring above $3 a gallon in early September.

During the quarter, which ended Sept. 29, The Pantry's gross margin on a gallon of gas was 19.4 cents, up from 12 cents a year ago.

Energy companies' executives have come under fire for rich earnings that their corporations incurred during the same period.

Pantry President and CEO Peter Sodini said that his company's prices were raised only as much as they had to be during the shortages.

"We could not stay down 10 or 15 cents below our competition because, literally, in those days, it would have been a matter of hours before we were wiped out," he said. "We tended to react to the market as it evolved."

The Pantry's fourth-quarter and annual results also were bolstered by the acquisition of 96 stores, the introduction of more private-label products in its stores and new coffee, soft-drink and food options.

Fourth-quarter revenue was up 33 percent, to $1.4 billion, and net income for the quarter was $25.4 million, or $1.12 a share. Analysts had predicted earnings of 95 cents per share. Same-store merchandise revenues were up 4.7 percent in the fourth quarter.

For the 2005 fiscal year, the Pantry's revenues were $4.4 billion, up 26.8 percent from 2004.

Net income for the year was $57.8 million, or $2.64 a share.

The Pantry's stock rose $6.80 to close at $47.90 Thursday, trading at one point as high as $48.35.

The stock has surged during the past three years as the company improved its financial health, spruced up its stores and bought more stores.

An investor who purchased $1,000 worth of the company's shares in fall 2002 would have stock worth more than $42,000 today.

Reaction on Wall Street was so strong Thursday for two reasons, said Karru Martinson, a consumer analyst who follows The Pantry for CIBC Worldwide.

First, the stock was up because of the company's performance and ability to get supply during the gas shortage. And investors like The Pantry's aggressive but cautious growth plans, which will likely keep the company focused on expanding in the Southeast for now.

"They're going to be diligent about this and not just chase acquisitions for the sake of it," he said. "And the raised guidance for the [next] year doesn't hurt either."

The Pantry reported that it expects 2006 earnings-per-share of $2.80 to $2.90, up from a previous estimate of $2.55 to $2.65.

In 2006, it seems likely the company will continue its growth by acquisition. The company this week announced a deal to buy 39 Interstate Food Stop stores from Waring Oil Co. in Vicksburg, Miss.

"This is a tough business," Sodini said. "This is a business that is now going to be best executed if you have size, and buying power and geographic dispersal and good credit."

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PTRY, BCM, CM,

Source: The News & Observer

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